Retreat in gasoline prices a temporary gift

The Consumer Price Index in November took its largest plunge in 56 years, fattening wallets for just a few weeks during the biggest spending season of the year.

The extra cash was money saved at the gas pump, where prices fell 16 percent, the Bureau of Labor Statistics reported Thursday. The result was a drop of 0.6 percent in the CPI.

Unfortunately, that gift is gone.

Gas prices are rising again, heating costs are climbing, and wage growth is anemic.

"The fact is that real wages did increase, but you are not likely to see an increase next month," said Paul Kasriel, director of economic research for Northern Trust Co.

The core CPI, which doesn't include food and energy, was up a modest 0.2 percent during the month and 2.1 percent for the year, according to the Bureau of Labor Statistics.

Of course, people generally spend money on both food and energy, so the plummet in gasoline prices during November gave consumers' buying power its largest one-month boost in decades.

Yet the overall CPI remains 3.5 percent above its level of a year earlier.

During those 12 months, prices in some categories have been steadily rising: Food and beverages were up 2.2 percent; medical care was up 4.5 percent; education rose 2.3 percent; and housing, a formula that combines rents and ownership, rose 4 percent.

The calculations do not always fully reflect the impact on consumers, Kasriel said. "If you don't own a house and you don't have a 30-year, fixed-rate mortgage, housing has gotten a lot more expensive this year."

A few components did fall. For instance, the cost of clothes slipped 1.2 percent.

The onset of cold weather means larger heating bills. Meanwhile, the factors that drove gas prices down have been slowly evaporating, wrote economist Rakesh Shankar of Economy.com in an online posting to clients. "We will see pump prices rising further over the next few weeks."

Despite enjoying a one-month surge in their buying power, consumers' inflation-adjusted earnings were still down over the past year.

November likely did not mark a change in the trend, said Jared Bernstein, senior economist for the Economic Policy Institute.

"One month's improvement because of a swing in energy prices is not going to change the trajectory of wage gains over the course of this recovery."

An eight-month recession ended in November 2001. Since then, inflation has been mild but still high enough to chew up gains made in average American earnings in the succeeding two years.

During the past four years, inflation-adjusted hourly earnings have dropped by a nickel.

During that same period, productivity has surged 13.5 percent and gross domestic product has consistently expanded at a healthy clip.

"You've got very impressive growth rates, but it's clear where the money is going," Bern­stein said. "It is accumulating way up the wealth scale."

The wage report includes manufacturing workers and nonsupervisory service employees — a total of about 80 percent of all workers.

Anemic wage gains are not typical for a strong economic rebound — but they are not unprecedented. In fact, workers did slightly worse during the four years after the 1990-91 recession — but then the economy took off, along with wages.

Will that happen again?

Healthy wage gains typically depend on a tight labor market, with employers willing to bid more as the competition for good workers heats up.

And the U.S. labor market has been improving modestly. Unemployment is low — 5 percent — but at least partly because many people are staying out of the work force. New jobless claims edged up to 329,000, the government said Thursday, although virtually all the post-hurricane claims are believed to have been made already. Continuing claims also rose.

Overall inflation will remain low partly because paychecks are not growing rapidly, Kasriel said. "It just doesn't seem to me that we will have tremendous wage pressures."